Five check cashing companies have sued to stop New York from moving ahead with a plan to change its government benefits distribution system.

New York is one of seven northeastern states that have banded together to choose a vendor for electronic benefits transfer. Instead of paper transactions, in EBT systems networks of electronic terminals or automated teller machines are used to distribute government payments.

Currently in New York, these benefits are distributed by mail and then through check cashing outfits. The check cashers say they are being unfairly cut out of the new distribution process.

The lawsuit, filed Jan. 24, contends that the new system "has many shortcomings as compared to the current system and the costs of such a system may far outweigh its realized benefits."

The check cashers say the seven-state group, known as the Northeast Coalition of States, issued a request for proposals last summer and narrowed the field to five finalists by fall. Then, they contend, the RFP was significantly revised but other companies were not allowed to enter the bidding, a prohibition they characterize as "arbitrary, capricious, and an abuse of discretion".

The lawsuit - filed by Home Check Cashing Corp., Zerega Check Cashing Corp., Rite Check Cashing Inc., Uneeda Check Cashing Inc., and Melissa Check Cashing Corp. - requests a court order "declaring the RFP null and void and commanding the (state) to refrain from selecting an offeror or entering into any contract".

By state law, the existence of this lawsuit keeps New York from signing a contract once a winning bidder is chosen, said Joseph Coleman, vice president of Rite Check and president of the 340-member Check Cashers Association of New York.

The association and a welfare recipient named Silvia Rivera are also petitioners in the suit against the New York State Department of Social Services.

The suit is the second major strike against the state's electronic benefit transfer plan. Last month, several state legislators recommended that New York back out of the multistate coalition, saying they had too many unanswered questions about the process.

A spokesman for the state social services agency, which is overseeing the EBT bidding, said the five bidders - First Security Corp. and the bank subsidiaries of Citicorp, Chemical Banking Corp., Fleet Financial Group Inc., and NationsBank Corp. - are now revising their bids.

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